Exam 8: Aggregate Expenditures

If the marginal propensity to consume (MPC)rises,the multiplier:

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9.Which of the following statements is correct?

In an economy with three sectors (household,business,and government),government spending is $5 billion,taxes are $4 billion,and investment is $4 billion.If the economy is in equilibrium,then saving is:

Assume that the MPC is 0.8.Full employment is considered to be at a GDP level of $500 billion.The current GDP is $400 billion.The government is committed to a balanced budget.To achieve full employment,the government should _______ taxes by ____________ and increase government spending by ________.

In the simple Keynesian model,the only two things you can do with your income are:

Analyze savings using the average propensity to save (APS)and the marginal propensity to save (MPS).Support your response with numerical examples.

Explain the multiplier process,how it is computed,and why it operates in both directions.Support your response with formulas and an example.

How does the simple Keynesian model differ from the classical approach to analyzing saving?

In Keynesian macroeconomic equilibrium,AE = Y and C = S.

(Figure: Consumption Spending) At point A:

In the nation of Economia,the economy is overheating and there is danger of inflation.The chief economist estimates that current income is $50 billion,while the optimal level is $40 billion.The multiplier is 4.If government wants to close the inflationary gap,it should reduce government spending by:

(Table)The table that follows shows the data for Keynesland. Income Aggregate Expenditures $0 $100 $100 $150 $200 $200 $300 $250 $400 $300 $500 $350 $600 $400 Plot the data on an aggregate expenditure schedule.Suppose a housing boom causes consumption spending to rise by $100 at all levels.Graph the new aggregate expenditure schedule.By how much would equilibrium income rise? What is the value of the multiplier?

Investment is defined as spending by:

In the Keynesian aggregate expenditure model,prices are assumed to be fixed because resources are idle (underutilized).

The largest component of aggregate expenditures is:

Classical economists claim that ______ is the primary determinant of saving,and Keynes claimed that ______ is the primary determinant of saving.

If aggregate expenditures are less than current output:

Adding the investment schedule to the consumption schedule changes the marginal propensity to consume.

Equilibrium income is reached when injections equal withdrawals.

Analyze consumption by comparing the average propensity to consume (APC)with the marginal propensity to consume (MPC),using numerical examples to support your response.Is either APC or MPC consistent with Keynes's psychological law?